Abstract
In order to examine if the impact of oil price shocks depends on the structure of an economy, a vertical (VSC) and a horizontal (HSC) long-run supply curve identifications are successively imposed on a three-variable structural vector autoregression (SVAR) with Indian time series data. While core inflation is measured with the VSC, the HSC requires a new concept of demand-driven inflation: residual (demand) inflation, which gives the impact of short and medium-run demand shocks on inflation. Both core and residual inflation are estimated. The data favours the HSC, but both identifications imply that policy demand squeeze aggravated international oil price shocks.
Keywords
Get full access to this article
View all access options for this article.
